Time to Bolster Biodiesel

December 16, 2009 06:00 PM

Pam Smith, Farm Journal Seeds & Production Editor
It's taxing to think about, but the biodiesel tax incentive is currently set to expire on December 31, 2009. The National Biodiesel Board (NBB) released a study last week showing that allowing the credit to lapse would have a negatively impacts on everything from biodiesel production and soybean production to loss of jobs and loss of tax revenue for state and local governments.
The biodiesel tax incentive is designed to make the alternative fuel price competitive with diesel fuel in the marketplace. It's structured so that the value of the incentive is reflected in the market price of the fuel. Biodiesel produced from virgin feedstocks like soybean oil and non-virgin feedstocks, such as yellow grease and animal fats qualify for the $1.00 per gallon excise tax credit.
The study, conducted by economist John Urbanchuk, director of LECG, LLC, a Pennsylvania-based consulting firm, shows the biodiesel industry will add $4.1 billion to the Gross Domestic Product (GD) in 2009 and account for 23,000 jobs in all sectors of the economy. In addition, the biodiesel industry will provide $445 million of tax revenue to the Federal treasury and $383 million to state and local governments.
Urbanchuk's report indicates the biodiesel industry has already taken some licks in recent years. Volatile commodity prices, weak motor fuel demand and recessionary trends put biodiesel product for the first 10 months of 2009 at 409 million gallons, nearly 30% below the same period in 2008. The NBB estimates biodiesel sales for 2009 at 475 million gallons, 31% lower than 2008 sales. NBB reports that173 American companies that have invested in production capacity of 2.7 billion gallons, but capacity utilization currently hovers around 15%.
Without the tax credit, Urbanchuk concludes that the price of biodiesel would be insufficient to provide a positive return over variable costs and the industry would likely collapse. The tax credit for biodiesel has been in place since 2004 and has been extended twice, most recently in October 2008.
Read Urbanchuk's full report to learn more about B100 returns over variable costs and the contributions of this fuel to the national economy.

You can email Pam Smith at psmith@farmjournal.com.

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